The plastic company is trying to decide whether to use machine A or B in its plant. The company uses a 15% MARR

• Machine A has an initial cost of SR 150,000, requires annual maintenance costs of SR 15,000, and will last 10 years.
• Machine B costs SR 250,000, requires SR 8,000 annual maintenance, and will last 20 years

Question

An engineer at the company hypothesize that the service life has no merit in the comparison and can be assumed as perpetual. Which machine is best in this case?

Question

The company would like to explore the following scenarios:

Scenario1:

If both machines operated for 10 years after which the machines will be sold. The salvage value for Machine A is SR 9,000, and SR 11,000 for Machine B.

Scenario 2:

If both machines operated for 20 years then the following assumptions are needed:

• Machine A would need to be overhauled at the end of its service life which will cost SR 33,500 and then the annual cost will decrease by 5% each year.
• The salvage value for Machine A is SR 5,000 for Machine A, and SR 6,000 for Machine B.

Determine which machine is best in Scenario 1 and Scenario 2?